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1. Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $740. Selected data for the companys operations last year follow:

Units in beginning inventory		0
Units produced		14,000
Units sold		11,000
Units in ending inventory		3,000
Variable costs per unit:
Direct materials		$ 150
Direct labor		$ 360
Variable manufacturing overhead		$ 52
Variable selling and administrative		$ 20
Fixed costs:
Fixed manufacturing overhead		$ 810,000
Fixed selling and administrative		$ 940,000

a. Assume that the company uses absorption costing. Compute the unit product cost for one gamelan.

Unit product cost:_______

b. Assume that the company uses variable costing. Compute the unit product cost for one gamelan.

Unit product cost:_______

2. Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $980. Selected data for the companys operations last year follow:

Units in beginning inventory		0
Units produced		240
Units sold		225
Units in ending inventory		15
Variable costs per unit:
Direct materials	$	140
Direct labor	$	360
Variable manufacturing overhead	$	35
Variable selling and administrative	$	20
Fixed costs:
Fixed manufacturing overhead	$	66,000
Fixed selling and administrative	$	28,000

The absorption costing income statement prepared by the companys accountant for last year appears below:

Sales	$	220,500
Cost of goods sold		182,250
Gross margin		38,250
Selling and administrative expense		32,500
Net operating income	$	5,750

a. Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.

Total fixed manufacturing overhead in ending inventory:______

b. Prepare an income statement for the year using variable costing.

3. During Heaton Companys first two years of operations, the company reported absorption costing net operating income as follows:

	Year 1		Year 2
Sales (@ $61 per unit)	$	976,000	$	1,586,000
Cost of goods sold (@ $32 per unit)		512,000		832,000
Gross margin		464,000		754,000
Selling and administrative expenses*		301,000		331,000
Net operating income	$	163,000	$	423,000

* $3 per unit variable; $253,000 fixed each year.

The companys $32 unit product cost is computed as follows:

Direct materials	$	7
Direct labor		10
Variable manufacturing overhead		3
Fixed manufacturing overhead ($252,000 21,000 units)		12
Absorption costing unit product cost	$	32

Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings.

Production and cost data for the two years are:

	Year 1	Year 2
Units produced	21,000	21,000
Units sold	16,000	26,000

a. Prepare a variable costing contribution format income statement for each year.

b. Reconcile the absorption costing and the variable costing net operating income figures for each year.(Losses should be indicated by a minus sign.)4. High Country, Inc., produces and sells many recreational products. The company has just opened a new plant to produce a folding camp cot that will be marketed throughout the United States. The following cost and revenue data relate to May, the first month of the plants operation:

Beginning inventory		0
Units produced		42,000
Units sold		37,000
Selling price per unit		$79
Selling and administrative expenses:
Variable per unit		$4
Fixed per month	$	564,000
Manufacturing costs:
Direct materials cost per unit		$14
Direct labor cost per unit		$8
Variable manufacturing overhead cost per unit		$1
Fixed manufacturing overhead cost per month	$	798,000

Management is anxious to see how profitable the new camp cot will be and has asked that an income statement be prepared for May.

***Assume that the company uses absorption costing.

a. Determine the unit product cost.

unit prduct cost:_______

b. Prepare an income statement for May.

*** Assume that the company uses variable costing.

c. Determine the unit product cost.

unit prduct cost:_______

d. Prepare a contribution format income statement for May.

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